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AAFCPAs Wealth Management’s Quarterly Update

March: in like a lion…

The year started with so much possibility and promise as we had every reason to believe the U.S. economy would continue to expand due to low inflation, muted interest rates, and historically low unemployment numbers. However, true to the English proverb, March certainly came “in like a lion.” Over the past month our lexicon has expanded to include new terms such as: social distancing, self-quarantining, flattening the curve, N95, and Zoom meetings. As a global community, we have never faced a challenge like this novel coronavirus, and like you, we are waiting to hear when this “new normal” will end. The question now is whether the proverbial “lamb” will be leading us out of these springtime months.

In the blink of an economic eye…

Within the past quarter, markets fell from all-time highs to yearly lows in what has been one of the steepest bear markets in history. Investors bore witness to the fastest and most vicious 1st quarter draw down in the Dow Jones’ long and distinguished history with losses that totaled -23.2% from January 1st to March 31st.

Far from being the only detractor in the financial markets, the precipitous drop of global stocks was matched with a similar response by bonds, currencies, and even gold. Prices of assets across the board fluctuated wildly—not based on the intrinsic value of the companies they represent—but rather on the assertion that economic progress would grind to a halt as the world’s interconnected economies shut down. In the financial world, we refer to this pricing as “dislocated.” In essence, a “dislocated” asset is one that trades not based upon the merit of its underlying worth, but rather, for any price an investor will take to unload it during times of panic.

In retrospect, the collapse in pricing should be of little surprise as investors have come to realize the goldilocks background that once supported the world’s collective economy has been radically changed. The discounting of economic growth that we have witnessed, as represented by the market’s collapse, has priced in an apocalypse in economic activity. The actual economic impact will not be known for months to come.

As investors, we need to be able to look at our collection of investments and feel comfortable with the names and types of businesses we own if we hope to weather this storm. Like an owner of any corporation, as investors we are every bit individual owners of the companies we hold in our portfolios and we need to view them as long term growth-minded vehicles.

Warren Buffet once quipped, “Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.” The same holds true for diversified portfolio holders investing in broad baskets of investments. The vehicles we chose to include in our portfolios are no less worthy today than they were 2 month ago. Apple is still the preeminent consumer technology company on the planet; Amazon will continue to command a huge presence in the consumer discretionary world; Johnson & Johnson will continue to exert massive influence on the health care field, etc. While the actual share values have fallen, the business prospects of these powerful companies will not cease to exist simply because of an economic slowdown.

At AAFCPAs Wealth Management, we share our optimism about where we think the market will land because our mission is to provide clients with peace of mind related to the management of their wealth. In fact, since the markets hit their lows on March 23rd, there has been a considerable rally that has retraced nearly half of the losses. Volatility is the new normal for the time being and we all need to be comfortable with that fact, but please know we are optimistic that things will return to normal in the markets over time.

That said, we do understand and appreciate the human toll the Coronavirus has inflicted on mankind. Jobs will be lost, savings will dwindle in the short-run, and most importantly, lives will be lost to this virus. We will do our part as global citizens to practice social distancing. And we will continue to provide counsel to our clients in their time of need.

Serving as a financial advisor, and more precisely as a Fiduciary of our clients’ money, means having to act in their best interest—all of the time, not just when it suits our bottom line. Providing sage counsel, helping ensure they have ample cash on hand, and establishing well thought-out, individualized financial plans that account for scenarios when markets crash is our job—our vocation.

Tax strategies to consider…

We advise clients to consider tax planning strategies that may be available at this time to ease the economic impact of the current crisis. For example, the Coronavirus Aid, Relief and Economic Stimulus (CARES) Act legislation, signed into law by the President in March, includes retirement plan changes, tax credits, and deductions to provide much needed support for both individuals and businesses.

Visit AAFCPAs’ COVID-19 Resource Center and contact Andrew Hammond, CFP® at 774.512.4143, ahammond@nullwealth.aafcpa.com; or your AAFCPAs Tax Partner to discuss provisions that may be tax advantageous given your unique circumstances.

About the Author

Andrew Hammond
Andrew is a Partner and Wealth Advisor at AAFCPAs’ Wealth Management, a Registered Investment Advisory (RIA) Firm whose mission is to provide valuable peace of mind to those who share the awesome responsibility to manage wealth. He provides comprehensive and carefully designed financial plans for individuals & families, nonprofits & foundations, and retirement plan sponsors. Andrew joined our team of advisors after 17 years in financial services at Fidelity Investments. He joined AAFCPAs because of the firm’s deep tax expertise, individualized approach, and commitment to honesty, ethics, and developing meaningful relationships with each client.